10 Ways The Pandemic Could Affect Your Tax Return This Year
Paid Content from Carminucci Agency
Tax Season is officially upon us! While many people can get overwhelmed at the prospect of filing their taxes, it doesn’t have to be another source of stress in an already trying time. Before you submit your taxes this year, take a moment to think about how the pandemic has impacted your finances. Many of us have been faced with unexpected and abrupt changes that have both directly and indirectly affected our financial situation. Were you laid off? Did you suffer a pay cut? Receive unemployment benefits? Face large medical bills? Did you move to escape the city? Changes like these are important to consider when filing your taxes this year. Check out these ways COVID-19 could affect your tax return.
- The deadline to repay deferred payroll taxes is extended
- Taxpayers now have until December 31, 2021 to repay deferred payroll taxes. This applies to employers who have employees who paid less than $4,000 every two weeks, or an equivalent amount every two pay periods.
- Charitable contribution deductions are extended
- With so many people in need of financial support throughout the pandemic, more and more people made donations to charity. This year, if you take the standard deduction, you can deduct up to $300 per person from cash donations. For 2021 only, the marriage penalty has been eliminated, so joint filers will be able to claim a deduction of up to $600.
- You can roll over unused FSA balances
- Flexible spending account (FSA) balances from 2020 can be carried into 2021 because may individuals miscalculated the amount of money they would spend. In addition, any remaining balances in these accounts at the end of 2021 will be rolled into 2022.
- The start of tax season was pushed back
- The IRS began processing taxes on Friday, February 12, which is later than normal. Many tax preparers recommend you file early to avoid delays since the tax period is shortened.
- Have you been working from home?
- Despite the challenges many have faced with building their own home office to comfortably and efficiently work from home, you cannot deduct the cost of your home office from your taxes. If you are self-employed however, you may be able to deduct expenses for your home office on your tax return.
- Did you dip into your retirement fund?
- Times are tough, and many people have had to take money out of their 401(k) or 403(b) accounts early in order to pay their bills this year. Normally if you did this, you would face a 10% early withdrawal penalty. But due to the CARES Act passed during the pandemic, you can withdraw up to $100,000 from those accounts without a penalty. You can also take up to three years to pay back any associated taxes. This applies to you if you, your spouse, or a dependent got sick, or if one of those people lost income due to the pandemic.
- Did you pay unexpected medical bills?
- You may be able to deduct medical expenses. To calculate how much you can deduct, add up what you paid for your medical expenses and subtract 7.5% of your adjusted gross income. If this result is negative, you won’t be able to deduct medical expenses. If it is positive, you can include it on your list of deductions.
- If you received unemployment benefits and didn’t have taxes withheld, you will owe taxes this year.
- While unemployment benefits are great with helping people manage the hardships that come with losing a job, be prepared to owe money in taxes if you collected unemployment during the pandemic.
- If you didn’t receive a stimulus check the first time around, you may be eligible now
- If your previous income was too high to qualify for a stimulus check, but you have since lost your job, you may be able to receive stimulus money on your tax return through the recovery rebate credit. You may qualify for the Earned Income Tax Credit (EITC), a refundable tax credit that is designed to benefit those who earn low to moderate wages. Be sure to ask your tax preparer if you are eligible.
- Tax Day is April 15
- As always, Tax Day is April 15. The start date to begin filing may have been pushed back, but the deadline is the same as always. This means you must file your 2020 tax return by this date.